There are more than 10,000 hedge funds, so what is the best way to perform hedge fund research to find the top hedge fund managers? The truth is: there is no best way to perform hedge fund research. You can probably start with one of the many hedge fund databases, but from there you will have to do a lot of leg work and due diligence. Hedge funds in general are very secretive and getting data and intelligence on them is difficult. But they are much more willing to give you information if you have something that they want.
Unless they have so much assets under management that they are turning away investors, hedge funds want your money. They want your money to increase the size of their assets under management so that they can have a bigger pay day in the future, when they generate big returns on their AUM.
Until they collect your investment, this is a significant source and probably only source of leverage that you have over them to get the information you need to make an informed investment decision. Once you sign on the dotted line, they have much less incentive to cooperate with your requests for information.
If a fund has a long lock up period or side car provisions, they can be even less forthcoming than a fund with no lock up period, so be especially careful with these types of funds. The longer you lock in the less concern the fund has about you withdrawing your money, so you have less leverage.
Integrity is the Word
When performing research on a fund the most important thing to understand is the people that run it. The most important quality above all others is integrity. They will be managing a significant portion of your wealth so they had better be the most trustworthy people you can find.
Do Your Own Homework
You have to do your own due diligence on this. You can’t rely on the impressions and presence of others whom you feel are good investors who have done their homework. At times, people invest in funds because other well known investors have invested in them. They assume that the presence of these well known investors means that all of the due diligence has been done and that the fund is legitimate. However, this is not always the case. Just look at the example of Madoff.
Madoff was a fund with tens of billions of dollars from many prominent investors. It was a Ponzi scheme that was a bag of hot air, but somehow many highly regarded investors were suckered into it. Everyone assumed that everyone else had done the required research and they did not bother to do their own research and just look at what happened.
So do not make the same mistake. Make sure that you meet all of the principals of the firm and make sure that your gut instinct says that they are trustworthy. Would you trust them with your wallet? If not, pass on investing in them.